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rain man david
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all right everybody welcome it is the podcast
you've been waiting for the all in pod emergency
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episode 20 the number 11 podcast in the
world number one in tech number 11 overall
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joe rogan sway pivot npr rachel maddow left in the
dust welcome to the number 11 podcast in the world
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can you believe it besties with us the queen of
kenya himself david friedberg rainman david sacks
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hot off the banger by young spielberg closing
up episode 19 and of course the dictator
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chamath polly hapatia how we doing boys lovely
how are you lovely friedberg lovely lovely it's
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a lovely tuesday emergency pod and so with you
guys um retired from craft ventures to pursue
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his dream of being a fox news host how's that
going for you now that you've got full media blitz
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well yeah i've been i've been invited i was on
bloomberg i've been invited on cnbc tomorrow i
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might even be on fox on thursday so everybody
maybe tucker everybody wants a piece of the
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besties everybody wants a piece unbelievable
we're pariahs in our own industry and now
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we've transcended tech i've taken our rightful
position i got invited on cnn which is crazy
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uh on what show on which show the guy with the
british accent he kind of does um piers morgan
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no there's another guy who does cnn international
and they were doing like a whole oh that guy yeah
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yeah you know the guy with the glasses
he's funny he's pretty funny yeah
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i i didn't do it um i really do not want to
speak for robin hood but uh we do need to
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pick up where we left off in episode 19 which
a lot of people were wondering chamath are we
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still friends are we still dusties we are um but
i do want to say one thing um jason and i talked
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this weekend and he said something to me which i
actually thought about a lot which is that hmoth
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when you get that emotional you know i think the
the point of what you're saying gets lost and um i
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had i had a lot of time to think about that um so
one i wanted to say jkl if if anything i said um
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you know hurt your feelings uh i want to say i'm
sorry i think you are the most incredibly loyal
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person and that you know spans friendship to
being an investor too so i just wanted to say
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i'm sorry to you and to be quite honest with
you when i when i listened to a couple of my
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comments i was like wow you know i was a little
emotional um and i think uh it didn't need to
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be that super extreme i think you know the thing
that it touches for me is like i forget sometimes
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maybe where i'm at today and i go back to where
i was 20 years ago or how i felt as a 16 year old
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and i channeled that a little bit so anyways
jacob i just want to say i love you with all
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my heart and i'm sorry i love you too chamath
and you know it it did get a little bit personal
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and we were all passionate about you know our
positions and you know it was a little difficult
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for me because i'm trying to give my guys my team
robin hood the benefit of the doubt and it wasn't
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an easy week obviously to do that but just to to
recap here sunday vlad was on clubhouse with elon
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musk our pal who almost blew up clubhouse and uh
there were so many people trying to get into that
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room and i think it tops out at 5000 on clubhouse
that people were holding their phones up to their
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youtube accounts i think that's probably how most
of us listened to it was the youtube people were
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just syndicating it live to youtube but uh
ilan did a tremendous job interviewing vlad
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uh which is leads to a really interesting topic
david about subjects just routing around the
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press and going directly i mean elon is
now the best interviewer in the business
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um and he basically said listen did you have a gun
to your head and i think it was pretty much that
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uh according to the reports that have come out
the depository and trust and clearing corporation
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which is wall street's main clearinghouse for
stock trades demanded 3 billion in addition to
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collateral from robin hood which they said was
an order of magnitude more than usually required
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we all know they um raised 2.4 billion this week
on top of the 1 billion from wednesday on top of
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the 600 million credit line that's 4 billion in
cash apparently the requirement for them went from
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3 billion to 700 million so it seems like that's
there's some equaling out of what they have to
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cover and uh the gme short interest dropped in
half today it's monday i'm sorry it's tuesday
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but yesterday it had dropped in half the squeeze
seems to have settled down wall street bets has
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clearly won and of course um episode did uh jason
did supernova i i didn't listen to it but did um
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do you guys think that uh elon and vlad got to
the truth like was it clear well let's get an
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independent party here sex yeah so um i thought
the the interview was was a bit curious um because
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uh it it took elon several tries to get vlad
to say the the quite frankly the obvious answer
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um elon set it up saying you know what what
i think all of us were thinking which is look
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were you either forced to do this or is it
an action that you decided to take and if so
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why and you know and and elon kept trying to get
him to say yeah we were forced to do this and vlad
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wouldn't quite say that he gave these very vague
ambiguous answers which is why elon finally said
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listen did you have a gun to your head or not
blink twice you know and so it was i don't know
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whether it was a function of miscommunication or
whether we just don't know all the facts yet but
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i don't feel like the interview put everything
to rest the way that it easily could have
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um and and you look i don't want to be i don't
want to pile on to the situation i you know i'm
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i'm pro-founder i'm going to give vlad and
robin hood the benefit of the doubt here
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i think probably they were compelled in some way
to do this i don't think they wanted to do it but
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you know if we're going to make this a teaching
moment what i would say is like to any founder
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if you're ever in the position of having to take
an action that is inimical to your stated mission
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right and their stated mission is freedom
to trade what was the word you used
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a nematode anathema sure yeah if you're going to
basically violate your state admission you either
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need to post the government order that required
you to do that or you need to post a very
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well-reasoned blog explaining why you're doing
that and you know if i were robin hood and i got
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a call in the middle of the night saying that
you have to basically take this trade offline
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i would say well give that to me in writing
because i'm gonna have to post that on my
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website right if i don't have a choice about that
i you know i need to refer back to this industry
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order that i'm receiving and the fact they didn't
do that and the fact that they didn't post a blog
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explaining the reasons behind the choice and
in fact vlad's now had to go back three times
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to explain it i think that's created this world
of problems for them there's a difference between
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this being a regulatory requirement and
a commercial requirement correct like
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if you think about the you know the the the law
um the regulatory body that oversees the law that
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that kind of um uh oversees what they're doing
business-wise the sec or whoever could have
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come in and said here's the here's what i'm
telling you you have to do i'm your regulator
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um but what happened was there are these clearing
firms that they partner with that said i need you
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to post more capital and rather than post more
capital or take the risk of going bankrupt they
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said we are going to restrict trading to minimize
the capital requirements that we have on our book
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and so if you think about what that decision comes
down to it's a decision of either our customers
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are going to lose money or we're going to lose
money and um and i know that it's not that black
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and white but you know it's very difficult to kind
of explain the nuance of what took place there
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but it really was a point of like we are going
to lose money or we are going to go bankrupt or
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our customers are going to have to lose money and
that's such a tough decision i can't imagine any
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executive any of us being in that situation and
deciding do you protect your shareholders or do
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you protect your customers and how much do you
let your shareholders lose how much do you let
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your customers lose and it was a very complicated
situation that they found themselves in because
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their business model was predicated on this
clearing you know on this model that they ran
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that uh when suddenly a lot of risk came on the
book they didn't have the capital to cover it
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and and they had to basically uh you know limit
their their customers as a result it was a pretty
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ugly situation but but david well kind of say
one thing i actually think that if the choice is
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simply between you losing money you the company or
your customers or you lose your users losing money
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i think that's an easy choice i think the company
eats it look what airbnb did during covet right
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when they had a whole ton of cancellations
because of covid they ate the they ate all
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those deposits they made good on that and i
actually think if that's all that was involved
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that was a big mistake i think robin hood should
have eaten it jamath you want to chime in here as
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we go around the horn look i think um here's what
we've learned which is that there's all kinds of
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ways in which this financial infrastructure
works that none of us really understand
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it turns out that it may have also included
the people running robinhood to be quite honest
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um and so you know we know what payment for
order flow is now we know that you know some
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companies like public have completely issued
it um you know folks like robin hood make a
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ton of money from it i think it's clear that
you know elizabeth warren to aoc to whomever
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are going to now spend a bunch of time
talking about it it may or may not change but
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before the problem with the whole situation
of gamestop actually doesn't really
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surround that because it's more of a symptom the
real problem was what led up to it and what led up
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to it was you know the insistence that a bunch of
organizations needed access to a preferential set
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of data so that they could theoretically
participate in that order flow before
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and the second was that the rules for you
know certain organizations are different than
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those for banks and so you know hedge funds can
leverage themselves up to such a massive degree
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that you create that you know ltcm type of
issue where you know you take 5 billion and
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all of a sudden you have 1.5 trillion so that that
shouldn't happen right so we need to figure out
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how we can actually deal with those systemic
issues upstream and then we need to have better
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disclosure downstream so that consumers
could choose hey listen if you want you
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know pfof by the way as i've learned in the
last couple days payment for order flow is
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actually not necessarily such a bad thing in
certain cases because it actually guarantees
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better price execution in some cases but
that's not always true for options i think it's
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somewhat more true for stocks there are you
know for example like jason when you ask me
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you know i asked the team at so far like you know
what's the how much how much is uh how much is
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made on payment for order flow and the answer was
1.5 million dollars and the forecast for next year
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was like 400k so that's materially different
than 400 million dollars right so you start to
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figure out like okay how should we think about
these problems and i think that's what we have
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to face we have to get answers to these questions
now yeah there's definitely going to be a lot of
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investigations into this and thinking it through
i think there are kind of three possibilities here
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when you when we analyze this now that we're
a week out from it i think uh all going down
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which is was there poor communications or other
non-disclosures in place right we're trying to
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figure that out with robinhood it feels like
there's both right there there could very well
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be non-disclosures with this private company the
dt cc i mean obviously they could have optimized
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communications and then was this a black swan
event or to your point is it poor preparedness
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jamath we have to figure that out how prepared are
these companies to deal with this kind of stuff
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and then is it really bad optics that citadel
and all these people are involved or is it a
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conspiracy a grand conspiracy and then if there's
going to be an investigation it's going to be
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pretty hard to cover up any conspiracy right can
i offer one idea i think that there are certain
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there are certain parts of the economy or you
know the way in which the world works where
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you you can't distinguish you know bad operational
capability and black swan events i'll give you an
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example airplanes there is just no situation
where you could say a plane crash was a black
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swan event and you move on right and we
we decided that a long time ago and so
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as a result just the amount of risk management and
compliance is so high that every time something
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like that happens it's it's an enormous process
and we've seen that in the 737 thing for boeing
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yeah 737 max by the way they just got settled
too for just discussion which is kind of crazy
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those planes are back on and nobody went to
jail right so that's an example at the other
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end of the example you know we have things that
have happened like on facebook and twitter and
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instagram and snapchat which is like hey all of a
sudden like you know certain kinds of content or
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certain things happened like the christchurch
mass shooting the the societal judgment there
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was that that was a black swan event you
know we don't need rules and regulations
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and so i think that another important question
that we have to ask is is the financial plumbing
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that you know sort of allows the capital markets
to work and specifically the financial plumbing
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that allows retail normal folks to participate
in order to try to make money and get ahead
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should that be deemed more like what use adjacent
black swan like infrastructure where it's like
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sometimes [ __ ] happens and we just move on or
is it more like an airplane crashing where you say
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none of this stuff should be allowed to happen can
i can i add one one more point to that which is
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i i think that um it's frankly spin to be trying
to characterize uh concerns about what happened
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as a conspiracy theory you know i heard uh
vlad used that word and jason now you're
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you're echoing the company's talking points the
reason this is not a conspiracy is because citadel
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is on both sides of the trade it's a conflict
of interest we should be using the word conflict
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not conspiracy now the question is how do we
interpret that conflict of interest you have
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company you have citadel providing payment for
order flow so they're basically executing uh robin
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hood's trades they're their biggest customer
and then at the same time they're moving in
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um and they're backing up citron and melvin so
they're on both sides of this trade how does
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that work how can we not have questions about
that and to then characterize that oh it's a
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conspiracy theory if you have questions about it
really no no i'm totally fine with people having
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investigating if there is a conspiracy right and
the conspiracy that people were floating is robin
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hood was told to stop trading these stocks
by citadel that did not happen if that did
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happen that would be explosive and impossible
to cover up what it was is does this dtcc have
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some influence or does citadel have influence on
the dtcc you know that those are the questions
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that i think remain unanswered the dtcc is a
cooperative so it's a collection of its member
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organizations so by so i think what we'll we'll
find out which organizations were part of dtcc
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who made the decision who then told robin
hood you know we'll also find out by the way
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who put in the money to robin hood you know did
they have a direct beneficial interest in them
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having the dtcc make that decision and so i think
where david's right is like imagine this conflict
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of interest i now let's just use me as an example
i is social capital i am buying their order flow
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i am also a member of the cooperative i'm also
backstopping their investment and now all of a
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sudden you would say welchmath your hands are
way too messy here right like your your fingers
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are in a lot of pots and how do i know what you
know exploding message on signal wasn't sent
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you don't know you don't know um yeah all we do
know is that you had all these insiders right
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you had uh you had citadel you had you know this
industry consortium whether it's the collective or
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citadel individually they were under pressure
by the industry and at the same time you had
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these outsiders you had these reddit kids who had
basically taken them for 20 billion dollars right
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they had finally figured out a way to beat the
insiders at their own game and just at the moment
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that these outsiders were winning and about to
deliver the coup de gras and bust these guys
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out of the business for good somehow the insiders
managed to tip the board over and start a new game
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that is what people are reacting to and look i
mean you know i i'm not saying that i i don't
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know why vlad would have done it unless he was
frankly forced to do it right because why would he
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um so i'm not blaming him but there is something
fundamentally very corrupt at the way that the
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system and these insiders who have all the power
and all the money when they finally got threatened
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they basically figured out a way to turn the
board over and prevent the outsiders by the way
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the the other thing that isn't getting covered and
this is going to be the tragedy of this is none
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of us really knows the cost of the 3.4 billion
dollars that they took in i'll tell you the only
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group of people that are for sure going to get
completely creamed in this which are employees
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right i mean we know you think they're going to
get too much preference stack because they got
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they got diluted oh my gosh they i mean how do
you not put three do you put 3.4 billion dollars
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in at par who would do that i think that's what's
exactly happened i don't have inside information
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but i think that's exactly what happened yeah
that's my house i mean i think that or perhaps
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a discount to the ipo which is imminent from what
i've been reading online yeah talk about terrible
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timing too right i mean they were trying to go
public this year mike like this may be terrible
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timing or maybe perfect timing i mean it may be
that jason if it turns out that they were able
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to i mean then it then it creates a whole host of
issues which is how stupid are these investors but
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um if if that is in fact what happened because
you look at the for example the the pound of
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flesh that you know silverlight got out of airbnb
what a brilliant trade i mean so like if there
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was one we're going to explain it to you that
was my deal of the year from last year from our
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from our bestie awards you'll go ahead and explain
it freeburg yeah they put in debt and then they
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got warrants and and the warrants ended up making
them silverlake forex it's insane they made they
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made like three four billion dollars right but
the company's worth over 100 billion now so as
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downside protection during a pandemic that could
have gone on for three years no no but that's the
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whole point if you think about that if you think
about the trade of the great financial crisis it
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was warren buffett putting capital into goldman
sachs which was 23. he did the same yeah he did
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5 billion into each of them the same weekend
exactly and he said hey guys everything is fine
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these guys are going to be fine they're backed
by by berkshire and it turned out everything was
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fine and you know he made he made an incredible
fortune and i think i mean on top of his already
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fortune so the point is he made a great trade uh
i think that in the in the silver lake example
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they did the exact same thing they were like
hey guys we believe in this everything's going
00:19:52
to be fine and when all of us were literally
losing our mind because we were stuck in our
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apartments and houses thinking the world was
going to end silver lake saw they had clarity
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they did a deal which was the trade of the year
david's right and so similarly you would have
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thought that this moment was the opportunity for
the trade of the year of 2021 i mean we're early
00:20:12
on but all i know is i've been getting increasing
offers from my robin hood sharers in the secondary
00:20:18
market you know throughout two questions here
we have been having a hard time understanding
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who's short what the short interest is there's a
bunch of like data companies that are providing
00:20:29
estimates and maybe the data is only clear best
you're right the best source of data that i have
00:20:35
access to is a company called market m-a-r-k-i-t
they're they're they're they're quite large um
00:20:41
but as of this friday the short interest was still
i think about 50 um in gamestop and so it's been
00:20:48
it's been ebbing down i didn't check today well
the the report was it got cut in half um again uh
00:20:56
and that there was a very small short interest
now but the stock dropped another 60 today so
00:21:00
obviously if you're short the stock you may start
buying and cut and taking your profit and your
00:21:04
gains and going home at this time and moving on so
do we need to is this going to start a discussion
00:21:12
of transparency and shorting and should
all that information be short should you
00:21:16
be allowed to short more than the shares that
are available or that are available in the float
00:21:19
i think should we readdress shorting in
general no there's a sim there's an even
00:21:23
i think shorting is a healthy component of the
market and i wouldn't i would leave it alone
00:21:27
uh because there i think there are some legitimate
organizations that short for three reasons reason
00:21:33
number one is that they are developing a market
neutral strategy for their clients and people
00:21:38
are should be allowed to pay for that right number
two is people are directionally betting on a trend
00:21:42
or investing on a trend and they are trading that
against potentially some other position where they
00:21:48
are long so that's an explicit view less about
being market neutral and then the third is that
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some people see outright frauds and they're trying
to vote loudly that hey listen there's something
00:21:57
untoward happening here so i think shorting is
really good i actually think the simpler solution
00:22:02
and listen and tell me if you guys agree is just
go to t plus zero settlement why all these margin
00:22:08
requirements go away altogether the problem the
reason why we have all these margin requirements
00:22:11
is all of a sudden you have this weird 2 48-hour
period that you know it's like oh wait who's got
00:22:17
the shares do i have the shares no do you have
the shares so they did i lend them to you did
00:22:20
you lend them to me are you going to pay me first
am i going to pay you first and instead you know
00:22:24
this is the kind of thing where it's like in
2021 this should be real time and automatic
00:22:29
everything every share should be id'd right and
then you should know exactly where it is you know
00:22:35
by the way there's another point that there's
another point that jamaat didn't make which is
00:22:38
that there is a benefit to the long holders and
equities um when there is shorting of that equity
00:22:44
in the market which is that they're getting paid
borrow on those shares so for folks that don't
00:22:48
realize or their broker is but you can access that
borrow if you own shares in a company that you're
00:22:54
gonna keep holding let's say you own some shares
in amazon and someone else wants to short amazon
00:22:59
they have to borrow those shares from someone and
they're paying a fee an interest rate to borrow
00:23:04
those shares and so the cost to short a stock is
actually not zero you have to pay a borrowed to
00:23:09
borrow someone else's shares so if you're holding
those shares in amazon you can actually make money
00:23:15
if you have the appropriate broker relationship
for those shares being sold short by someone else
00:23:21
and so this isn't just a people are coming
in the market and slamming down stocks they
00:23:25
are paying the people that are along the stock for
the right to borrow their shares and and sell them
00:23:30
ahead of you know buying them back later
um and so in the case of gamestop i think
00:23:34
the cost to borrow got so high uh that
you're basically paying 30 40 50 60 percent
00:23:40
you know interest rate to borrow gamestop shares
to sell them short because there was so much
00:23:45
interest in selling short but there you know there
is a market dynamic in in the cost to sell short
00:23:51
that um you know that doesn't uh come at
a at a kind of negligible or free cost
00:23:56
the my initial my introduction to shorting uh
in that example was when i first bought tesla um
00:24:03
that you know my broker said you know jamal
if you lend your shares out you can make 24
00:24:08
i remember this conversation 24 to your interest
right and i thought oh my god and then i said well
00:24:14
what what am i really doing and he's like well
you're allowing people to bet against tesla and
00:24:18
i said no and i just kept the shares and i was
like i'm never going to allow people to really
00:24:23
and since then to be clear i've never i've never
ever ever allowed my shares to be borrowed ever
00:24:29
and it's just a philosophical decision i don't
like shorting um but i believe that you should
00:24:34
be allowed to do it i mean if you're going to be a
long holder anyway you're saying i'm going to hold
00:24:38
these shares for five years ten years whatever
i just you know it's a way to juice your returns
00:24:43
it's true it's how a lot of people think about
especially mutual funds that own large positions
00:24:47
and stocks they'll they'll make really good juice
returns because they're getting straight to bars
00:24:52
it gets even better if you're if you're running
a levered book because then you know right
00:24:55
you take a buck you spin it up to six bucks
you buy six bucks a tesla now all of a sudden
00:24:59
you're earning 24 on six shares even though
you've notionally bought one share right
00:25:03
i've still never done it i can't i can't bring
myself to do it i just feel like it's just so
00:25:08
uh i just can't do it i just like it's like
how can you be long and then bet against your
00:25:13
own company i guess well yeah it doesn't make
sense but sorry saks should we limit the amount
00:25:18
of shares that can go short against a company in
some way and should we add a transparency where
00:25:24
if you short more than x percentage of those
shares we know your short position because
00:25:27
that seems to be also very confusing here there
were people speculating on twitter that the wall
00:25:33
street bets crew and i have no knowledge of this
or other hedge funds came in and saw this mess
00:25:39
and that what we've seen the last couple of days
were other people shorting at 300 or it could have
00:25:45
been even been the same traders or some portion of
the traders who ran this up with the short squeeze
00:25:50
then flipped their position from long to short
yeah i look i clearly need more transparency
00:25:56
we need to resolve some of these conflicts of
interest prevent them from happening i think a lot
00:26:00
of the the users of robin hood didn't understand
that they were the product not the customer
00:26:07
that that is a real issue but let me let me kind
of uplevel this and speak to the politics of this
00:26:11
because something really interesting happened
you had everybody from aoc to ted cruz basically
00:26:17
denouncing what happened here taking the side of
wall street bets against these wall street moguls
00:26:23
and so what you're seeing now is a new fault line
in american politics in the post-trump era it's
00:26:29
not just about left and right anymore it's about
insider versus outsider and i think this is going
00:26:35
to be a major major theme that we see and let me
actually i wanna i wanna share something you know
00:26:42
i just wrote a blog post called the insider's
game about this idea and i found a passage in
00:26:47
elizabeth warren elizabeth warren's book which is
really interesting because it describes how the
00:26:52
insider's game works and the person who described
it to to warren is um there is no yeah none other
00:27:00
than larry summers who was uh the former treasury
secretary under obama he was president of harvard
00:27:06
he's the consummate insider and he taught the
insider's game to generations of harvard students
00:27:11
so here's what he said he presented warren with
a choice he said to uh to her well she said
00:27:19
i could be an insider or i could be an outsider
this is from her memoir in 2014 a fighting chance
00:27:25
she wrote outsider quoting larry summers outsiders
can say whatever they want but people on the
00:27:32
inside don't listen to them insiders however get
lots of access and a chance to push their ideas
00:27:38
people powerful people listen to what they have to
say but insiders also understand one unbreakable
00:27:45
rule they don't criticize other insiders that is
the insider's game it's a protection racket where
00:27:53
these powerful insiders these powerful elites
of wall street of uh big business big media
00:28:00
and politics they get together and they protect
each other no matter how incompetent they are
00:28:04
how corrupt they are silicon valley at silicon
valley they're involved in this too but big tech
00:28:10
and this is the revolution i think that's going
to happen i think trump was kind of a a forerunner
00:28:15
of that is that we are going to see a movement of
people across this country who are sick and tired
00:28:21
of the insiders game and they're going to rise
up and vote these insiders out of office and
00:28:26
put in some new people who aren't beholden to
these powerful special interests what you're
00:28:31
speaking to is populism right sex you can call
it populism i call it insiders versus outsiders
00:28:39
i think it's uh it's going to be very
important for folks to not be a career anything
00:28:45
meaning career executive career politician um
career regulator career what if if ever you're
00:28:53
in sort of like if you can put that word in front
of your sort of existence i think what people will
00:28:59
see is someone who as you said thrives on being
an insider and i think that there's just going to
00:29:03
be a ton of distrust career school administration
official you know career admissions person career
00:29:09
anything now is not what you want to be you want
to be sort of a little bit more dynamic because
00:29:13
you can have multiple arcs to your life and you're
not beholden to anybody i mean i think it's a it's
00:29:19
not as black and white as institutions are bad
or institutions are good there are there are many
00:29:25
examples where uh the institutional framework
allows for continuity and performance over time
00:29:32
you know a lot of trump's rhetoric uh and i you
know i know that we're um we're past the trump
00:29:38
era at this point but um there was a lot of
conversation about this notion of a deep state
00:29:43
because there was frustration with how some or
many of these institutions government institutions
00:29:48
were operating but if not for that deep state we
may have found ourselves in a lot of very ugly
00:29:53
situations over the last four years that there
really were layers and layers of career public
00:29:59
servants that did incredible and incredibly heroic
things to preserve democracy to preserve the
00:30:06
rights that we all hold dear in the constitution
and those were um you know really important roles
00:30:12
and the institution played a really important role
in in providing continuity and providing trust and
00:30:18
and security um and so i i think it's easy to
bash institutions when things aren't working
00:30:23
perfectly but we also have to keep in mind that
it's not that all institutions are always bad
00:30:28
it is absolutely true that there is corruption
but there are certainly benefits that we have to
00:30:32
kind of not not allow populism to become a runaway
framework for how we deal with everything we're
00:30:36
frustrated with i'm not saying that i think
i think what i'm saying is institutions are
00:30:41
critically important but now i think we have to
change the rules for how you can be a part of them
00:30:46
and then how long you can stay so for example
like if the rule was you know you can only be
00:30:51
a two-term politician wow that would be what a
cleansing effect that would have on anybody that
00:30:57
chose to serve in politics up and down the board
you know at the federal level at the state level
00:31:02
two terms in and out california california has
that you know we have a 12 year limit right
00:31:06
um in the the state uh assembly and senate
um and so you know i think we're seeing that
00:31:12
happen in progressive places like california
um you know obviously a good segue uh but uh
00:31:18
very um i i think very much agreed that
uh that the notion that there needs to be
00:31:23
um you know we talked about this last time we
need to ensure that the institutions don't become
00:31:27
beholden to special interests and um uh and that
there isn't accountability because the failure the
00:31:33
the lack of accountability is really um where
things bloat over time because you just add
00:31:38
stuff on you don't ever take stuff apart and
uh and ultimately you have kind of an inept
00:31:44
non-functioning institution so let me give you the
report card on california and then we can figure
00:31:49
out if term limits can't fix it what can fix it so
here's just some some data points uh first i'll do
00:31:56
one section first section number one economy and
jobs nearly the highest unemployment rate in the
00:32:00
u.s at 8 plus highest poverty rate in the u.s 18
and a half percent of all californians highest
00:32:05
income taxes in the us 13.3 30 billion dollars
of potential fraudulent unemployment benefits
00:32:12
from 2020 11 billion already determined fraudulent
doubled the oi doubled the oil and gas drilling
00:32:18
permits instead of incentivizing you know maybe
uh climate or biotech or tech jobs a 227 billion
00:32:25
dollar spending pan spending plan for 2021 in
terms of quality of life highest homelessness in
00:32:31
the country worst graduation rate in the country
around 17 percent of students in california don't
00:32:36
graduate the worst slash highest cost of living in
the country and the worst wildfires in the country
00:32:42
1.8 million plus acres burned on covet 19 third
highest rate of covet 19 infections in the world
00:32:48
658 cases per 100 000 people and then the worst
vaccination deployment in the us around 50 and
00:32:55
then culturally i didn't know this i don't know
if you guys know this but um here are the number
00:32:59
of companies this is just a subset that have left
california toyota charles schwab tesla and oracle
00:33:05
in some way shape or form which is estimated now
to have cost california 77 billion dollars of
00:33:12
future revenues and 300 000 jobs over the past few
years nearly 3 million people have left the state
00:33:18
53 percent of californians want to leave the
state and 63 percent of californians believe
00:33:24
the american dream is dead okay so if let's let's
go and figure out okay so if if if term limits
00:33:31
at 12 years don't work what do we do well
i think i think we have to have politicians
00:33:36
who stand up to special interests aren't in the
pocket of special interests i mean the problem
00:33:39
we have in california the biggest problem the
reason why uh california is such a mess is that
00:33:46
we have government of the special interests by
the special interests for the special interests
00:33:51
i mean the politicians in sacramento that we
have a one-party state effectively and they
00:33:57
are beholden completely to these special interests
look at the deals uh they make i mean so example
00:34:02
in california we have uh over 340 000 public
employees who make over 100 000 uh dollars a year
00:34:10
that cost taxpayers over 45 billion okay and you
know we have lifeguards making a quarter million
00:34:16
dollars a year it's crazy right i mean because
the people making these deals um are are in the
00:34:24
pocket of these of these government unions they're
the biggest contributors to california politicians
00:34:28
and you know this is my uh fundamental i guess
concern or or beef with with gavin newsom um
00:34:37
is that you know fundamentally you know he's
worked his way up the the latter of california
00:34:42
politics by you know by basically benefiting from
these special interests throughout his rise you
00:34:49
know step by step he's never challenged
the insiders or any special interests
00:34:55
he just kind of caters to this political class
and so that's why i think fundamentally he's not
00:35:00
going to be part of the solution it just feels
like every job he's had in politics is just a
00:35:06
stepping stone to get to the next step and even
the governorship now is just his stepping stone
00:35:11
to get to whatever's next and i think you know
californians are tired of being stepped on in
00:35:18
this way there's i mean there are some structural
challenges in the state right guys i mean like
00:35:23
we should not for forget the fact that there are
some um voter mandated supported propositions that
00:35:32
have passed over the last couple of decades that
really create a structural challenge in terms of
00:35:38
how do you allocate resources and capital and
how can you effectively govern in this state
00:35:43
you know the the three that are often highlighted
is prop 13 which passed in 1978 uh which is the
00:35:49
state uh property tax limit so we've talked
about that one uh i believe in the past there
00:35:55
was a proposition for in 1979 that limits the
amount of money that states uh can appropriate
00:36:01
uh um that the state can appropriate and then prop
98 which passed in 1988 and this is the big one
00:36:07
um prop 98 has been challenged in courts and
there have been you know many many kind of um
00:36:14
uh efforts at finding loopholes and getting
around it and litigating it but it mandates
00:36:20
funding levels in the state from pre-k through
community colleges and it creates a structure that
00:36:26
is really difficult to navigate around and really
difficult to operate or manage it's almost as if
00:36:31
you guys were running a a private company and your
board said here's how much you as the ceo have to
00:36:37
spend this year and here's how you have to spend
it it is such a difficult decision um uh you know
00:36:43
for the uh for the governor to have to kind of say
well you know i'm going to make some changes to
00:36:48
that because he'll end up in court um and so you
know i want to just kind of highlight that there
00:36:53
are structural challenges to the way the state
operates and obviously to get a lot of things
00:36:56
done you still have to pass through the state
assembly in the state senate um and it's not as
00:37:00
as simple as making you know better decisions in
the governor's mansion i think there's uh there's
00:37:05
a lot that we have to kind of resolve structurally
in the state that's going to take a long freaking
00:37:09
time and a lot of cooperating parties um to
get there and so you know i know for those of
00:37:15
us who are very much about making fast quick um
and accurate decisions you know good decisions
00:37:21
this is a really difficult place to do that uh
this state the way the way the laws have been set
00:37:25
up and the way that uh that the legislature has
oversight well i mean look you're right but this
00:37:30
is why we need real leadership we need somebody
who's gonna come forward and say listen we need
00:37:34
to change this proposition another one we need
to change is prop 47 that decriminalized a whole
00:37:39
bunch of behavior i mean crime is exploding in the
state that proposition needs to be looked at as
00:37:43
well right i mean we we need somebody who's going
to come at government from completely different
00:37:49
perspective which is to think about the citizens
of california first of all to pay attention
00:37:54
to the middle class of california and to think
about us as consumers of government services
00:38:01
who need to be satisfied and right now we
have if you were to think about the services
00:38:07
government's providing people are churning off
of it we had net immigration of 135 000 people
00:38:13
net left the state right you know 40 000
families in california pay about half the taxes
00:38:19
if say 10 000 of them leave we've got a giant
hole in the budget that no one knows how to
00:38:24
replace and we have no idea how many people have
even left how many families have left the state
00:38:29
so we really need leadership here to to not just
go along with the special interests who are in
00:38:36
power and who are willing to stand up and and
push for some of these these reforms by the way
00:38:40
i think it's worth just highlighting some of these
numbers because they also speak to the structural
00:38:45
challenge in the state the state of california
generates about 140 billion dollars in revenue
00:38:50
70 of that comes from personal income tax and as
sacs pointed out half of that comes from the top 1
00:38:56
or 40 000 households it is uh it is a you know a
heavy weighting on and by the way that um that top
00:39:04
tax rate of 13.3 applies to households over a
million dollars of income and for those that
00:39:10
don't know you know there's income strata that are
defined by the state and depending on what strata
00:39:16
you and you you pay a different tax rate the
highest strata is making over a million dollars
00:39:20
a year where you pay 13.3 and that's where these
40 000 households cover most of that budget um and
00:39:27
20 to sales and use tax and 10 is corporate tax to
speak to the corporate tax rate for a second you
00:39:32
know that's 10 of our revenue as a state we charge
a 9 average corporate tax rate in the state to
00:39:37
operate that's um incredibly high and it's one of
the reasons besides kind of a challenge that that
00:39:43
elon and others kind of made very public here over
the past year um but that corporate tax rate um
00:39:50
makes it very difficult to operate in the state
relative to other states that are offering
00:39:54
no tax rate lower employ a lower cost of uh
of labor um and less of a regulatory burden
00:40:00
to operate and it's why we're seeing an exodus
not just of people from the state because the
00:40:04
services are obviously not being well managed but
also um of businesses you know finding a better
00:40:09
place to operate in in canada there's an approach
that i think is really useful here which is that
00:40:15
um you know the canadian government um uh offers
credits called shred credits i can't remember if
00:40:23
it's at the federal level but it's definitely in
the state of ontario because i've used this for
00:40:26
for some of our companies you hire engineers and
you can basically capitalize their salary and you
00:40:33
can offset their costs so that when you're
a young company you're effectively paying
00:40:37
zero tax or if you're a small company you
effectively pay zero tax and that seems
00:40:41
really right you know where you're a small
business person and you know you're holding um
00:40:47
you know 5-10 employees and you're making you know
a million bucks a year in revenue whether you're a
00:40:51
restaurant or a software company you basically pay
nothing but then at the other end of the spectrum
00:40:56
you know when those credit when those credits
burn off theoretically if you're a facebook or
00:41:01
a google or an amazon now all of a sudden you know
you can pay a much larger percentage of uh of of
00:41:07
what's due and i think that there's all kinds of
progressive tax schemes that work on the corporate
00:41:13
side there's a bunch of tax credits that you can
use to sort of incentivize certain kinds of jobs
00:41:18
and i i think you're just much better off because
then you know these companies can't leave if all
00:41:23
the people want to stay in one place i want
to highlight one more structural problem so
00:41:26
even if you do resolve that even if you do
resolve these propositions that have passed
00:41:30
that have passed in the past and are causing us
problems in terms of budgeting and ability to
00:41:34
budget adequately going forward one of the other
challenges and even if you do resolve the tax
00:41:39
structure to generate a more balanced um revenue
model that allows for innovation and allows for
00:41:44
employment allows for opportunity we have a uh
this is an interesting stat i found this week
00:41:50
um how what what how many americans i'll just
say the number one out of nine californians
00:41:58
are um a member of a public pension fund
in the state of california one out of nine
00:42:03
and the public pension funds in california as of
the last reporting are roughly 250 billion dollars
00:42:10
underfunded relative to the payment obligations
they have to their members think about that for
00:42:14
a second so not only does the state have a lot
of debt we've got a 250 billion dollar hole
00:42:19
for paying people money that they believe they're
owed in the future and that is creating a massive
00:42:24
problem where the state needs to figure out how do
we fill that hole how do we meet these obligations
00:42:28
to our citizens who worked who earned what
they believed to be a fair income stream
00:42:33
for the rest of their lives that they may
not ever get you know and so so we've got
00:42:38
both the the legislative problem in terms of
how the state is structured we've got these
00:42:42
propositions that have passed that kind of um
you know buckle down the governor and buckle down
00:42:47
the decision makers in terms of what they can and
can't do legally we've got um an income generation
00:42:52
problem with respect to concentration and we've
got some of these you know heavy burdens on us
00:42:57
like health services but also this underfunded
attention liability that is almost like such a
00:43:01
priority and no one's really paying attention to
it because the sirens are going off and meanwhile
00:43:06
the service providers in the state are completely
effing up the service that they're supposed to be
00:43:11
providing you know chemoth highlighted a bunch of
great ones in terms of fire response and whatnot
00:43:15
at the beginning and obviously the vaccine
rollout we know is is just completely flawed
00:43:19
but um you know here's another interesting
stat the california edd this is the the link
00:43:24
i just sent out by the way on our on our
zoom chat but there's 114 billion dollars
00:43:29
in unemployment claims paid since covet this is
an insane statistic but it looks like roughly 27
00:43:35
or 30 billion dollars of fraudulent claims were
paid by the edd on those unemployment claims
00:43:42
so the folks that are actually running these
institutions themselves aren't even operating well
00:43:47
you know not to mention the actual huge
liabilities the state has accrued over the
00:43:50
years and the structural deficiencies so as much
as i would love to um you know kind of propose
00:43:56
that we could all come up with a simple solution
this is a complex freaking set of problems
00:44:00
that probably require several books to resolve
and i just want us to be honest and real about
00:44:04
that that this is um you know this is going to be
a challenging issue probably for decades to come
00:44:09
for this state to get itself out of the holes it's
dug itself into you know one thing i'll say is as
00:44:13
goes california so goes every other state and so
goes america because if there is one state that
00:44:18
theoretically you think would have been positioned
from a human capital perspective to figure these
00:44:22
out and political will it's this state and if
this state can't figure it out we're in a whole
00:44:28
[ __ ] ton of trouble well we're we're not doing a
very good job figuring it out right now that's why
00:44:32
we need to make a change i mean david you're right
about the magnitude of the problems the challenges
00:44:37
but it all starts with some sort of you know
outsider rebellion and that's what's going on with
00:44:42
this recall that's why we have to support it it's
why i support it it's not gonna be the end of the
00:44:48
it's not the it's the beginning of the solution
not the beginning of the beginning at the
00:44:51
beginning it's the beginning of the beginning
but we need to create an institution to solve
00:44:54
the problems over time right it's going to be
it's going to be the coalescence of what you're
00:44:59
pointing out zach which is the the you know
the the will of the strong the will of the the
00:45:03
rebellion uh to figure this out and resolve the
time the institution may be the all-in pod but
00:45:09
um but uh but let me let me build already yeah
but let me let me build on yeah actually jacob
00:45:16
you posted a tweet saying what should we call our
party and uh anyway my suggestion was the outside
00:45:21
surprise party yeah that's the surprise party
but let me build let me build on on freiburg's
00:45:27
point about the pensions okay where did these
giant underfunded pension obligations come from
00:45:34
because i think that's a really important point
to explain so here's what basically happens if
00:45:39
you're a government worker in california you
could typically retire after 20 years with all
00:45:45
of your benefits and and not just 100 of your
salary but the the salary you made in your last
00:45:52
year and so what happens is uh when people get
to that 20-year mark they get a lot of overtime
00:45:57
so that's why we've seen articles about people
retiring you know after you know if you're
00:46:02
retiring after 20 years you could be in your 40s
okay for your pensions so they double up their
00:46:08
overtime they get to 250k then they get a
pension of 125. you don't get your full salary in
00:46:13
retirement right right there there's a there's
a complicated formula but the point is you can
00:46:16
stuff it with over time and it's very generous
and then they can go because they're still in
00:46:20
their 40s they can go get a another government job
somewhere else and then stack that pension on top
00:46:25
and then by the way it doesn't just last until
they die but it lasts until their spouse dies so
00:46:32
now there was a proposal years ago to
move this whole system to like a 401k
00:46:37
type of system and it was squashed by who the
unions and newsome opposed it because you know
00:46:44
he doesn't do anything that unions don't want
and so we have these completely unsustainable
00:46:49
pension liabilities everybody can see this train
wreck coming but nobody has the guts to stand up
00:46:54
the unions and do something yeah i mean there's
very few careers that still offer pensions even
00:46:58
the new york times you know over a decade ago got
rid of their pension because people live too long
00:47:03
they retire too early and then the cost
of health care is just so ginormous here
00:47:08
that it's going to crush any pension fund so you
have to move to a 401k and we're it's kind of hard
00:47:15
to say to a cop or a firefighter who's running
into a burning building or putting themselves in
00:47:21
harm's way that they don't get one because it's
such a high-risk job but we really do need to
00:47:25
think of something more reasonable like a 401k and
that's coming from my entire family is you know
00:47:32
cops and firefighters and of service in new york
city and they all have pensions and you are right
00:47:36
david there is uh a tradition of trying to get
a little extra overtime because they average out
00:47:41
usually your last three or four years to give your
average salary to base your pension off of and
00:47:46
then of course you can do another job or go work
go from a firefighter to a cop vice versa garbage
00:47:52
sanitation worker to get those things we didn't
talk about the nimbyism and how extraordinarily
00:47:58
hard it is to build homes here and how extremely
expensive it is a lot of the young people who are
00:48:04
thinking of coming to california are looking
at the housing prices they want to come here
00:48:08
to start companies they love the california vibe
but the the housing is a non-starter you can't
00:48:13
live in the peninsula or anywhere in the the wider
bay area unless you are you know a dual household
00:48:21
income with what four hundred five hundred six
hundred thousand dollars minimum minimum minimum
00:48:26
and that's not even counting private school
but you're talking about where are there sub
00:48:30
one million dollar homes within the proximity of
the bay area they don't exist you go to austin
00:48:36
and i've been looking at austin real estate just
coincidentally and there are many homes that
00:48:40
are three hundred thousand dollars that are four
hundred dollars a square foot everywhere within 30
00:48:46
40 minutes of downtown austin and that's where
young people are going and then finally if we
00:48:51
look at our to to lower and order david we are
not treating fentanyl like the super drug it is
00:48:58
you know it's one thing to have drug reform and to
have prison reform we we know these are important
00:49:05
but you can keep that in your mind that we want
to make a more just legal system while at the same
00:49:12
time not allowing people to deal fentanyl and if
you just type into google fentanyl versus heroin
00:49:20
lethal dose and click on the image search you
will see two vials and it's a very famous photo
00:49:25
where there's like you know a pinch of you know
uh heroin that's the lethal dose and then in
00:49:31
the other vial there are like seven grains
of fentanyl and that's the lethal dose and
00:49:36
we are conflating a homeless problem with a super
drug yeah can i can i add to that so yes please so
00:49:46
so you know i was on the side of decriminalizing
cannabis and i think that and i think that there
00:49:52
we we overcharged too many people for drug crimes
when they were just users and should have been in
00:49:57
treatment and that's why i think there's been
a reaction against over-incarceration and i
00:50:03
understand that but i agree with you that fentanyl
is in a separate category it is this super drug
00:50:08
and here's the problem it is so powerful
it is so addictive and it's so destructive
00:50:14
nobody can hold down a job and get off that
drug once they start once they start taking
00:50:18
it i mean it's just game over so they end up
living in the streets and turning to crime and
00:50:23
petty theft to support their habit and that's the
situation we're in today and we have this growing
00:50:29
mass those massive numbers of people living in the
streets addicted to this super drug and we got to
00:50:35
stop it we got to get tough on this because it's
just you know right now the the the the solution
00:50:41
that our our da seems to be pushing whether it's
gas going in la or chase of booty in san francisco
00:50:46
is they're just not prosecuting anything you know
we had prop 47 downgrade a whole bunch of property
00:50:53
felonies to misdemeanors and now the da's aren't
prosecuting the misdemeanors so they basically
00:50:57
just decriminalized burglary and so you've got
all these you know drug addicts um living on the
00:51:04
streets committing these crimes and they need to
be in treatment so i think part of what we need to
00:51:08
do here i actually think this is a big investment
california needs to make we need giant treatment
00:51:12
centers to address this problem and if somebody
gets caught committing a crime and they're they're
00:51:19
addicted to drugs i don't want to send him to jail
but i would make him go to treatment we have to
00:51:23
think about true compassion true compassion
for somebody who is addicted to fentanyl
00:51:29
is getting them off the street and getting them
into a rehab program or giving them the choice
00:51:35
of going to jail for the crimes they may have
committed so that there is this pressure to go
00:51:39
into treatment just to give you a stat in 1999 we
had like 18 000 overdoses we're now over 70 000
00:51:46
um and if you look just in san francisco we're
talking four or five times the number of overdo
00:51:51
overdose deaths to cover deaths this is a level of
human suffering that just makes no sense and it's
00:51:56
such a nuanced discussion right you can't you can
you have to be able to hold into your brain that
00:52:01
cannabis you know psychedelics mdma psilocybin
you have a long list i have a long list here
00:52:09
of the drugs of your own girl that you ought to
be recreational here are the drugs i'm a fan of
00:52:14
good here are the drugs that i don't take bad no
fentanyl i think you just have to look at the the
00:52:20
chance of recovery and the chance of addiction and
fentanyl and heroin are just tragedies tragedies
00:52:27
we also have to like have the courage to
actually not look at just the symptom like
00:52:31
i think treatment centers are a great idea i think
not sending people to jail is like an obvious
00:52:37
idea i also think if you take two or three steps
back and you think about what are the two things
00:52:42
that send people off the rails number one i think
is lack of a job and then number two is a lack of
00:52:48
mental health resources you put those two things
together it's you're done it's like it's like
00:52:53
kindling and it's like kerosene and a match all in
one and boom it goes and you know we didn't need
00:52:58
to know that answer because you saw that over
the last decade building up in the rust belt so
00:53:03
we knew that that was the those are the boundary
conditions for this so how do you get people back
00:53:08
to work how do you actually give cement you know
the crazy thing about reagan i mean we all forget
00:53:12
but reagan was the one that defunded all of the
uh mental health institutions you know when he was
00:53:17
governor of california and sent all these folks
spilling into the streets well think about how
00:53:20
many jobs that would create if we brought back
you know psychiatric facilities and made them
00:53:25
free this is where if we look at health care not
having a national health care program especially
00:53:31
for mental health is costing us more on the other
side when it comes to suicide if we're gonna spend
00:53:38
money and if we're gonna be in debt be in debt
for the right reasons like sure find a way to be
00:53:43
accountable and transparently spend money that's
fine spending money is fine government should
00:53:48
not be for profit you know government should i
don't even think government should be breaking
00:53:52
even i think that government should be generally
running at a loss and then the net gdp as long as
00:53:57
that's positive and accretive we're doing right
as a society right so government should be doing
00:54:02
the things that that they need to do for people
to have an even starting line but i just want
00:54:06
to yeah go ahead sorry no i was just going to say
that that's where we get it wrong because like we
00:54:10
you know we we like pat ourselves on the back when
the government turns a surplus and then you know
00:54:15
we like explode when a government runs a deficit
instead they're managing to the political theater
00:54:21
of a number instead of really understand how to
run a business but i just want to be clear like
00:54:26
the entire um premise of how that is run and how
we think about this from an economic point of view
00:54:34
is that we have to have gdp growth and if you
don't have gdp growth the whole formula fails
00:54:40
so let's just break this down in a simple way if
i'm um working and i'm making 60 grand a year i
00:54:47
can take out some credit card debt knowing
that i'm going to make an extra 10 percent
00:54:51
next year or an extra 10 percent the year
after if i know my income is going to climb
00:54:54
i can afford to take on some debt which
means spending more than i'm making right now
00:54:58
because i know that in the future i'll be making
more than i am today and i'll be able to pay down
00:55:02
that debt and so the whole premise of how we run
government is we should run at a deficit we should
00:55:08
accrue debt we should build infrastructure but in
order for that work to work i have to increase my
00:55:14
tax revenue in the future and there's two ways
to do that raise taxes or see significant gdp
00:55:21
growth and if you raise taxes you suffer the
problem that california may be suffering now
00:55:26
which is very high net worth people leaving the
state which is going to cause a collapse in the
00:55:30
revenue stream and the whole system fails if
you want gdp growth well you have to kind of
00:55:35
enable the system to allow for gdp growth which
means reducing taxes and growing housing but
00:55:41
the problem is the life that people want to live
doesn't necessarily mean that we need to have and
00:55:46
so this goes back to the housing question do we
need to have more business growth in the state
00:55:52
therefore do we need to reduce tax rates to
encourage business growth and by doing so we
00:55:57
have to also build more housing and the reason
people want to build more housing it's because
00:56:01
they want to see more business here and the whole
premise is kind of flawed if at the end of the day
00:56:07
getting more business here means you also have to
lower tax rates and cause all those problems it's
00:56:12
also how you have community and it's also how
you have diversity like nobody wants to live in
00:56:17
a model culture where everybody's really really
poor or everybody's really really rich i grew up
00:56:22
it's so sickening i grew up in a place
where everybody was really really poor
00:56:26
i now live in a place where everybody is really
really rich and the mono culture sucks and instead
00:56:31
what you want is you want transitions you want
people moving up you want people moving down you
00:56:35
want the hard luck story you want the got lucky
story you want it all and this is this is where
00:56:40
we've lost it i'm going to ask you a question
free book are you saying that if 40 000 people
00:56:46
left california we would blow a 70 billion hole
in the budget no we would we would blow a um
00:56:56
yeah about 40 000 count for half the income tax
so it's about 35 of 140. yeah so we would we
00:57:03
would blow a 50 60 billion hole in the budget 40
000 people 40 000 yeah out of 60 million 40 000
00:57:10
homes forty thousand homes out of sixty million
forty million out of forty million yeah yeah forty
00:57:15
dollars a similar thing happened to new jersey
and connecticut when they had everybody moving
00:57:19
down to florida and so this is not unprecedented
um especially with hedge funds and really high
00:57:25
taxpayers you know but what yeah what i'm asking
is is there a better way where you don't have to
00:57:29
depend on gdp growth to balance your budget and to
provide the social services you want to provide to
00:57:34
the state no of course of course not yet all it
all starts with having a healthy economy i mean
00:57:39
always right because that's what generates the um
the prosperity to pay for all the social programs
00:57:46
it's to pay ahead of the curve right that's my
point is like we're always paying ahead of the
00:57:50
curve which forces us to find gdp growth which
is how we get stuck in these cycles and these
00:57:55
problems and this is true not just of the state
but of nations as well and the u.s faces this and
00:58:00
others but by by spending ahead of the curve
by creating infrastructure by creating social
00:58:04
services by setting up these pension obligations
the only way to get out of the debt you've just
00:58:09
taken on is to grow and that creates all of
the systemic problems that ultimately lead to
00:58:14
populism and all of these kind of frameworks for
failure that are going to ultimately end here's no
00:58:19
no no no no no hold on disagree with that look
growth is a precondition for everything else
00:58:25
that's good okay growth growth needs to be managed
okay but it doesn't growth is not the problem here
00:58:31
the problem is a set of policies that are actually
killing growth and driving entrepreneurs and
00:58:36
innovators out of the state we saw elon musk leave
the state why he said that california was starting
00:58:42
to take its success for granted and had been
winning too long okay california needs to realize
00:58:48
it's not highly competitive situation now and
because of covid you can work from anywhere and
00:58:53
austin has become a tech hub and miami's become
a tech hub and those states have no income tax
00:58:58
and we have politicians in california just keep
raising taxes as if we're not competing against
00:59:03
these other states well we are and people are
leaving we're seeing a mass exodus here we've got
00:59:07
to realize that we can't raise tax rates beyond
the point where people are willing to bear them
00:59:13
this is the this is your i think your best point
david is that what the great pause did was it
00:59:18
let people reassess their lives how many people
do we know who either left the state change job
00:59:25
you know broke up with the spouse whatever it is
people reassessed everything in their life and
00:59:30
what people uniformly came to was why am i paying
this much and getting this little in the bay area
00:59:37
in california when i could get twice as much three
basically three times as much in austin or miami
00:59:44
and not pay this amount of taxes and be happier
and that is an existential problem for the bay
00:59:52
area if you know this is not just elon musk or
larry ellison oracle it's also rank and file
00:59:58
developers and the developers don't need to be
in the office so you could have this massive
01:00:03
middle leave too that nobody anticipates
and if all the developers said you know what
01:00:08
i want to be on the reno side of lake tahoe
you know i want to be in austin or wherever
01:00:12
i'm paying less taxes and i'm making the
same money and i got a better quality of life
01:00:16
what do you guys think happened so j-cal what what
happens to california or connecticut or new jersey
01:00:24
and what happens to florida just tell me what i
think it's a death spiral for new york and for
01:00:28
california where unless the representatives in
government start to represent the people who are
01:00:36
voting and living there and voting their interests
as opposed to the special interest to david's
01:00:40
point about the insiders we have disconnected
what the citizens of california want from what
01:00:46
the government officials are providing they're
just not in sync they're basically cow towing to
01:00:53
teachers unions or special interests and not the
people who are building companies or just people
01:00:59
are living here people want to build housing and
they won't let them you can't build apartments in
01:01:03
palo alto or you know anywhere in the city i mean
this is crazy you're right the the only middle
01:01:10
class that's going to be left in california pretty
soon uh it are government workers i mean that's it
01:01:14
that's the only people that can be making over
a hundred thousand dollars a year in california
01:01:18
are the government workers because everyone who's
middle class who's running a business is just is
01:01:24
finding it too difficult and um too difficult
to earn with the level of taxation and to run
01:01:29
their business and their regulation regulation
and they're leaving i mean just think about the
01:01:34
regulation issues of doing any real world i mean
you've done construction in san francisco we've
01:01:40
had businesses that are real world businesses with
storefronts it's it's jumping over hurdle after
01:01:45
hurdle after hurdles shutdown it's brutal what if
uh whenever you started a company in california
01:01:52
you got you know three or four years worth of tax
credits for engineers in return for one percent
01:01:57
of the equity that california was not allowed to
sell sure i mean some equity upside would be great
01:02:04
i have an idea chamoth how about you run for
governor yeah jamal here's an idea why don't you
01:02:10
isn't that why we're doing the emergency pod sacks
i think you should run we'll be right behind you
01:02:15
have we disparaged you too much or has this
been too difficult yeah let me let's speaking of
01:02:20
politics though i do i do need to tell the story
um this is a complete complete non-sequitur in
01:02:25
2012 12 or 13 i can't remember which year mike
bloomberg invites a bunch of us from technology
01:02:33
to uh to the white house correspondence center
we're like yes the white house correspondents
01:02:37
center did you go that's awesome of course i went
once here so hilarious you know myself ian osborne
01:02:44
hussein rama the founder of jawbone and i have
two amazing stories about this my experience at
01:02:49
the white house correspondent center number one
well three number one it's like the dinner itself
01:02:54
is kind of like a prom just because there's
just so many people right and so you know you
01:02:59
have to have a rubber chicken dinner because
there's like a thousand people in the room
01:03:02
but the second was that ella macpherson was
there and i've never seen more incredible hair
01:03:08
in my life just i have this image of this
person's hair and it was like the thickest
01:03:15
like it was like curly but like it looks so soft
this is the most incredible hair i've ever seen
01:03:21
i think those are called extensions or a wig but
go ahead it didn't look like that it looked like
01:03:26
real hair but it just it looked incredible
uh like like a lion like the main of a lion
01:03:31
and then the third story is i we're in a reception
there's an after party at the french ambassador's
01:03:38
place i start talking to this person randomly and
there's like all these stars everywhere but i just
01:03:41
start talking to this to this person and you know
she she's very chatty and i'm chatty chatty chatty
01:03:46
blah blah blah blah we're talking talking and then
at the end of this like sort of like five minute
01:03:50
conversation and we had not really introduced
each other she just kind of said hey and i said
01:03:55
hi and so we started talking and she says to
me um you mind if we take a picture and i'm
01:04:01
like yeah of course and i and i and i had no idea
what was coming so i was like so we take a picture
01:04:06
and she searched me and she says you know i think
you're really fantastic in parks and recreation
01:04:15
oh my lord and i worked so hard thought i was
a disease i'm sorry jesus christ how does this
01:04:24
happen at least she didn't call you urkel i mean
oh my god that was her second choice oh my gosh
01:04:31
i love you and parks and rec anyways that's
my that's my interaction with politics
01:04:35
i think you're ready for politics
because you just avoided the question
01:04:41
let's be really honest like i i'm not ready
to to do any of that i what i need to do is
01:04:46
i need to figure out you know a my
business and where it's going and then b
01:04:50
i do think it's worth figuring out what are
the conflict of interest laws and what do
01:04:54
you have to do if all of this were to come
to pass because i could not make a credible
01:04:59
decision unless i knew that uh because i
i just have things that i want to do and
01:05:04
that to me are the most important things
like i'll just be really honest with you
01:05:06
like i'm working on something in batteries that i
think is it's important for a lot of places much
01:05:11
you know more than just california and so
like if i have to abandon this battery project
01:05:16
uh i wouldn't do it you know just that simple
so i got to figure that out and you got to write
01:05:20
down all the illegal things you've done on a piece
of paper and all the illegal things you're doing
01:05:24
on a daily basis and then we gotta make sure you
have an extra you have a case of moleskins because
01:05:29
i could start they're never going to get
uncovered yeah the oppo research has begun right
01:05:37
that's that's what the dinner on thursday should
be about should start the oppo research program
01:05:41
oh my gosh that's a that's a long time but
there's certainly there's certainly a ground swell
01:05:48
in interest right sex and there's certainly oh
yeah it's crazy like i think i think chamoth has
01:05:52
um a lot of folks that that love his passion
and the way he speaks to them and that you know
01:05:58
he has a real um sense for what i think people
are feeling and can speak to that and obviously
01:06:04
has experience in kind of making decisions and
allocating resources right so you know i think
01:06:08
there's a lot of interest tomorrow and a lot
of uh drive to see you here's here's you know
01:06:13
[ __ ] or get off the park here's what i'll say
here's what i'll say i've grown up with nothing
01:06:20
and getting to the other side i'm completely
convinced that poverty is a disease that it is
01:06:30
except in this disease it is systematically
um reinforced you know what i mean
01:06:38
so jason stop that jason talking job is good and
i would like to say all americans and the citizens
01:06:48
of california i came from nothing i came from i
would eat rice three days a week and then i would
01:06:54
eat the plate the other four by the way the the
the reality is that if if i were to do it if like
01:07:00
all the checks came back and it seemed like it
was a plausible thing i would only do it for the
01:07:03
18 months and just kind of you know but you'd have
to get elected on a mandate where it was so clear
01:07:08
that it's like all of california wanted these
five or six laws to pass like i think it's like
01:07:13
you're not running a candidate you're running
a platform so it doesn't matter who it is
01:07:17
you know whoever goes in it it could be me
but it could be frankly kim kardashian or the
01:07:21
rock or david sachs i think what's really
important is we should get alignment on
01:07:26
a handful of laws that change the trajectory of
the state and the reason why that's important
01:07:30
is if those laws can pass and the state turns
around then that's the roadmap for the other
01:07:35
49 states and i think that's a big deal that's
a really big deal i think it's about a getting
01:07:40
adoption of a playbook a playbook a playbook to
fix california and if that playbook is something
01:07:45
that a group of people from different parties
and different backgrounds can coalesce around
01:07:49
and you know publish that playbook in a way
that's easily understood and um and you can
01:07:54
take it and run it let's let's pick what our
top item would be for me it's the building of uh
01:08:00
multi-family unit housing i think would be in
my top three what's in your top three sacks
01:08:06
well if if if i were to uh write a a met a a sort
of catchphrase for for a campaign uh it would it
01:08:16
would not be make it make california great again
but it would be something more like tough and
01:08:20
tolerant because that's what i think california
wants so tolerant on lgbtq rights um you know
01:08:28
tolerant towards people of different nationalities
towards immigration um you know tolerant on social
01:08:35
issues but i think what californians really
want now is tough on crime tough on hard drugs
01:08:42
negotiate tougher deals with these unions and
special interests who are just pillaging the state
01:08:48
and then you know and frankly
tougher on the politicians because
01:08:51
they're making it too tough on the people to
you know to to live and to run their businesses
01:08:56
and you know we need to make it easier on
the people and tougher on the politicians
01:09:01
freeberry what do you got in your top three
items if we if we could only put three items
01:09:06
on the docket you know one two and three
i think from creating much more affordable
01:09:11
housing through multi-family you know going up
as opposed to building out and just allowing you
01:09:17
know anybody who wants to add a couple of stories
they had a couple stories and just more housing
01:09:22
would lower the price of housing and maybe
we have to change you know the taxation and
01:09:28
maybe re-evaluate the value of homes because right
now you buy a home in 1970 for 50k you're paying
01:09:33
one percent of that for the rest of your life
right which then makes it impossible to move and
01:09:38
you got two people living in a five
thousand five bedroom square foot home
01:09:42
because they can't move because their
tax bases are so low on it right
01:09:46
what do you got freeberg i mean look the challenge
is with any one of these things you have to
01:09:51
balance it it's like we talked about last time um
you know we talked about adding a transaction tax
01:09:56
to trading on markets but you also have to get rid
of the capital gains tax right if you're gonna get
01:10:03
rid of that um uh you know that that proposition
that locks in the property tax rate i think it's
01:10:09
prop 13 right sex if you're going to get rid
of prop 13 you've got to phase it out over time
01:10:14
but to create the opportunity on the other side
which means how do you create more affordable
01:10:18
housing at the same time that you get rid of prop
13 you've got to enable as you pointed out the
01:10:23
ability for more rapid housing to be developed and
dropping regulatory constraints and maybe removing
01:10:29
some of the union pricing and some of the work
that gets done in the supply chain and so on
01:10:34
and so you know i think it's about the balance
trade-off amongst these things you know if we're
01:10:38
going to talk about trying to keep the top 40 000
households in california and you're going to drop
01:10:43
the tax rate on them to keep them here which is
an extremely controversial anti-populist movement
01:10:49
you know right now you'd have to find
another way to kind of resolve um
01:10:53
resolve that gap or at the same time kind of
reduce the cost of our top cost is education so
01:10:58
you need education reform our second top cost is
health care um and and and other related services
01:11:04
and how do you resolve that um that there's a
lot of structural things in there it's probably
01:11:08
a checklist of ten things that you would say
let's go negotiate better prescription drug prices
01:11:13
let's make um you know the services more
efficient meaning how many patients does a
01:11:17
doctor get to see per hour per day per year per
week whatever there's all these things that you
01:11:21
kind of go through and you can make each one of
those dollars that are being spent more efficient
01:11:25
so as much as i'd love to kind of rattle it up
to three different things this is a management
01:11:30
problem and you know as as those of us who have
run businesses that are struggling or challenged
01:11:35
have experienced there isn't one thing to do to
fix a problem when something is not operating
01:11:40
well but you really it really does come down
to talent and so you know i would think that
01:11:44
the people that are sitting in those assembly
and senate seats need to be the right people
01:11:49
and the person sitting in the governor's mansion
needs to be the right person who will surround
01:11:52
him or herself with the right people who are
operators and managers and leaders who know how
01:11:56
to resolve these problems and go through and do
just like that guy did and dave with the napkin
01:12:01
and you know write out look here's the 10 simple
things we can do to fix hhs and here's the 10
01:12:06
simple things we can do to fix higher education
and go in and cut half the expense and if you cut
01:12:11
half the expense you have a lot of things you can
start to do and so yeah i i i don't have a simple
01:12:16
answer for you j-cal but i think it comes down to
balance would you say school vouchers since you
01:12:21
brought up education are the quickest solution
there is to create more competition quickly
01:12:24
by giving parents the ability to take their
voucher and go to whatever school they want i'll
01:12:29
be honest i haven't read enough on school vouchers
to know the ramifications of the program uh
01:12:33
programs that have been proposed so i'm not going
to be very well very thoughtful in that well i'll
01:12:38
i'll i'll speak in favor of the idea of giving
parents more choice i mean these schools are
01:12:43
being are they being run for the students or for
the special interest because right now the parents
01:12:48
don't really get any choice i mean look if we can
recall the governor why can't we why can't the
01:12:53
parents of a school recall the headmaster i mean
why don't we give them the ability to circulate a
01:12:59
petition if they're unhappy i think in the case
of the governor recall if we get 12 percent of
01:13:05
voters to sign the recall petition then you get a
recall election so what if you had a system where
01:13:11
the parents of a school could sign a petition and
then they vote and if the majority of the parents
01:13:17
yeah majority of the parents vote to recall
a school then they can basically replace
01:13:22
the headmaster and run it in a different way why
shouldn't they have that choice it's crazy to me
01:13:27
that's what yeah yeah yeah let me give
you let me give you a little math i
01:13:31
just did on my on my calculator here so the
average student in california costs 18 000
01:13:38
a year roughly okay and we have a classroom
size on average of about 25 students it's
01:13:44
actually higher than the national average so
you multiply 18 000 by 25 that's 450 000 per
01:13:51
classroom okay now how much does a teacher cost
i mean okay no that's the average in california
01:13:58
for teachers it's all right let's let's say let's
say let's say that we paid teachers extremely well
01:14:04
let's say we paid the teachers 100 000 a year
because we all believe in having great teachers
01:14:08
okay that would still leave 350 000 left over and
remember you don't have the real estate cost right
01:14:14
the state already owns all these schools so
where is the money going we've systematically
01:14:19
entrenched poverty um i think that what happened
to you friedberg or saks or me or j-cal i don't
01:14:24
think it's possible anymore and i think that we
are aberrations and i think that folks that are
01:14:29
younger than us would look at us um and they look
at us i think in part because they're like god i
01:14:34
i would love to have that shot and i don't think
they know where to start and i think they also
01:14:39
see a system that feels very much rigged against
them so just by bitcoin i mean this is why they're
01:14:43
attracted to buying bitcoin we're doing what they
did with gamestop and why wall street insiders
01:14:48
versus outsiders they feel like they have this
opportunity to show the man and they don't that's
01:14:53
why they don't want to take on school debt i mean
i i don't blame millennials for being disgruntled
01:14:58
if they got a hundred or 200k in debt and they
were told this degree would get them you know
01:15:04
uh this would be their ticket and it was it's been
disconnected it's a great lie it's a great lie and
01:15:10
so you know that's that's one of the big lies and
and i think we're sacrificing it now because like
01:15:14
you know we're we're we're we're making this
great sacrifice because we're exposing these
01:15:20
lies to be exactly as they are so i mean if i
had to pick a couple things jacal i would say
01:15:25
the most important thing for me is school
vouchers tied to like i would increase public
01:15:30
school salaries you pick your number i don't
really care what it is a hundred grand 125 grand
01:15:37
but you need to tie it to school vouchers so
that any parent can put their kid into the best
01:15:42
school that is for them or start their own school
like there needs to be competition five parents
01:15:47
get together and they each get an 18k voucher
they can spend a hundred thousand on a teacher
01:15:54
to teach five students and if they hit their
goals like they're gonna do better what what five
01:16:00
parents even the you know the most disadvantaged
parents would take advantage of this to me that
01:16:04
would be the that's like the first above all else
because i think it creates accountability and it
01:16:09
allows our kids to have a decent shot the second
thing i would probably do is i would actually just
01:16:15
cut all taxes to zero on the personal side but i
would introduce a progressive taxation system for
01:16:19
corporations and i would try some of these novel
things like getting equity in turn for intern for
01:16:23
credits and allowing folks to capitalize certain
expenses i mean these are like i know people think
01:16:28
that's all so stupid but like you know if all
we did was just own one percent of apple google
01:16:32
facebook you'd have three trillion dollars four
trillion dollars trillion with the t you know
01:16:38
what i mean well not you that's four truly in the
market cap but you know you know what i'm trying
01:16:42
to say like if you control one percent of that
it goes a long way um so there's that and then
01:16:49
ah i do think that there's something that we need
to do for people to be able to live i i remember
01:16:54
interviewing somebody and you know he's what
he said to me just made me so sad he's like i
01:16:59
you know he drives an hour and a half
into work every day and then drives
01:17:02
an hour and a half home and i was like how
how is this possible and i just thought to
01:17:07
myself like what does that do to you and
your family he goes i don't see my family
01:17:12
and i'm like well can't we just increase your
salary and you know that's not possible because
01:17:17
of the job that he had and then he couldn't
afford to live and so all these things just build
01:17:21
up in the system so um those would be my three
things it sounds like we have a bestie platform
01:17:27
uh we we we uh need to figure out who the best
candidate's going to be hopefully we can convince
01:17:32
stramoth to do it but the next thing but the first
thing we got to do is uh we got to make sure this
01:17:37
recall happens there's another five weeks or so
to gather signatures so everybody should check out
01:17:43
the website it's rescuecalifornia.org it's rescue
california.org if you have the means to donate
01:17:50
please do i donated 50 000 to it they are taking
donations and even if you're out of state but
01:17:57
believe in this cause like tomas said what happens
in california or as california goes so goes the
01:18:02
nation you know it would be a really good thing
to send a message even if you're out of state to
01:18:09
these special interests who are ruining the state
that this isn't going to be tolerated because
01:18:13
every politician in the country is going to hear
that and they're going to start realizing oh i
01:18:18
can't just pay attention to the insiders i need
to start paying attention to the outsiders to the
01:18:23
majority of citizens who've never been organized
before but now they are getting organized and so
01:18:28
we need to send this message that is the first
step we're not going to get any positive change
01:18:33
in this state until the politicians are held
accountable and this recalls the starting
01:18:38
point for that and if you take a picture with the
form and cc your besties will follow you back or
01:18:44
retweet you or like you some combination of that
i saw a couple of people did it after the last pod
01:18:49
so print out the form and go ahead and take
connections the next the next um podcast
01:18:57
um just for everybody to know uh episode 21
we are going to start by reading mean tweets
01:19:05
there have been some there have been
some unbelievably vicious tweets targeted
01:19:09
you typically at jason and then and then at
me a little bit at david sacks but finally
01:19:16
really they went after the queen we've broken
the seal and the queen has been targeted really
01:19:24
he was called sanctimonious on twitter we
are going to make him read his mean tweet
01:19:28
to kick off episode 21 and we will see you all
next time on the all-in podcast love you guys
01:19:45
and they've just gone crazy with it
01:19:55
besties
01:20:19
we need to get mercy's
